The Finance Ministry earlier decided on a fiscal budget of Bt1.635 trillion for 2008 with a deficit of Bt120 billion or 1.3 per cent of gross domestic product under the assumption that GDP will grow 5 per cent. This is, however, slightly lower than the deficit of 1.7 per cent of GDP for the current fiscal year.

Pridiyathorn said the need to run a deficit for the second year was because the past government had managed economic policies that created hidden debts. In addition, the current economic situation is need of a fiscal stimulus.

Government investment in 2008 is set at 25 per cent of the overall budget. However, it is likely to disburse 25.5 per cent of the total.

Narongchai Akrasanee, executive chairman of Export and Import Bank of Thailand, said he agreed with the fiscal deficit policy as the economy is facing a slowdown in investment and consumption.

He said disbursement of the investment budget should not be lower than 25 per cent of the total in order to boost the economy, and the money should be spent on real investment rather than consumption.

According to Narongchai, in the 2006 fiscal year ending last September the government disbursed as much as 25 per cent of the overall budget, compared to the planned investment of 24 per cent. However, he said, most of the spending was for debt repayment, such as that for the Bank for Agriculture and Agricultural Cooperatives.

Narongchai suggested the budget deficit should not last longer than three to five years.

Pannee Sathawarodom, director-general of the Fiscal Policy Office, said the 2008 fiscal budget had been established under a policy of fiscal sustainability.

Deputy Finance Minister Sommai Phasee said on Wednesday that government revenue had been set at Bt1.515 trillion for the 2008 fiscal year.

He said government investment in 2008 would increase to 25.5 per cent of the total budget, compared to 24 per cent this fiscal year, while 2008 current expenditure would be no higher than this fiscal year's 72.5 per cent of the overall budget.

The current expenditure for local government has been set at 25.2 per cent of the overall budget, and the budget for debt repayment at 11 per cent.

Sommai said the ministry had assumed that 2008 GDP growth would be 5 per cent, with an inflation rate of 3 per cent. Therefore, nominal GDP growth next year will be 8 per cent.